Arrow Exploration : Q2 2023 MD&A

ARROW EXPLORATION CORP.

MANAGEMENT'S DISCUSSION AND ANALYSIS THREE AND SIX MONTHS ENDED JUNE 30, 2023

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") as provided by the management of Arrow Exploration Corp. ("Arrow" or the "Company"), is dated as of August 25, 2023 and should be read in conjunction with Arrow's interim condensed (unaudited) consolidated financial statements and related notes as at and for the three and six months ended June 30, 2023 and 2022. Additional information relating to Arrow, including its annual consolidated financial statements and related notes for the years ended December 31, 2022 and 2021 (the "Annual Financial Statements"), is available under Arrow's profile on www.sedar.com.

Advisories

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), and all amounts herein are expressed in United States dollars, unless otherwise noted, and all tabular amounts are expressed in United States dollars, unless otherwise noted. Additional information for the Company may be found on SEDAR at www.sedar.com.

Advisory Regarding Forward‐Looking Statements

This MD&A contains certain statements or disclosures relating to Arrow that are based on the expectations of its management as well as assumptions made by and information currently available to Arrow which may constitute forward- looking statements or information ("forward-looking statements") under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that Arrow anticipates or expects may, could or will occur in the future (in whole or in part) should be considered forward-looking statements. In some cases, forward-looking statements can be identified by the use of the words "believe", "continue", "could", "expect", "likely", "may", "outlook", "plan", "potential", "will", "would" and similar expressions. In particular, but without limiting the foregoing, this MD&A contains forward-looking statements pertaining to the following: the COVID-19 pandemic and its impact; tax liability; capital management strategy; capital structure; credit facilities and other debt; performance by Canacol (as defined herein) and the Company in connection with the Note (as defined herein) and letters of credit; Arrow's costless collar structure;; cost reduction initiatives; potential drilling on the Tapir block; capital requirements; expenditures associated with asset retirement obligations; future drilling activity and the development of the Rio Cravo Este structure on the Tapir Block. Statements relating to "reserves" and "resources" are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future.

The forward-looking statements contained in this MD&A reflect several material factors and expectations and assumptions of Arrow including, without limitation: current and anticipated commodity prices and royalty regimes; the impact of the COVID-19 pandemic; the financial impact of Arrow's costless collar structure; availability of skilled labour; timing and amount of capital expenditures; future exchange rates; commodity prices; the impact of increasing competition; general economic conditions; availability of drilling and related equipment; receipt of partner, regulatory and community approvals; royalty rates; changes in income tax laws or changes in tax laws and incentive programs; future operating costs; effects of regulation by governmental agencies; uninterrupted access to areas of Arrow's operations and infrastructure; recoverability of reserves; future production rates; timing of drilling and completion of wells; pipeline capacity; that Arrow will have sufficient cash flow, debt or equity sources or other financial resources required to fund its capital and operating expenditures and requirements as needed; that Arrow's conduct and results of operations will be consistent with its expectations; that Arrow will have the ability to develop its oil and gas properties in the manner currently contemplated; current or, where applicable, proposed industry conditions, laws and regulations will continue in effect or as anticipated; that the estimates of Arrow's

Q2 2023 MD&A

1

reserves and production volumes and the assumptions related thereto (including commodity prices and development costs) are accurate in all material respects; that Arrow will be able to obtain contract extensions or fulfil the contractual obligations required to retain its rights to explore, develop and exploit any of its undeveloped properties; and other matters.

Arrow believes the material factors, expectations and assumptions reflected in the forward-looking statements are reasonable at this time but no assurance can be given that these factors, expectations and assumptions will prove to be correct. The forward-looking statements included in this MD&A are not guarantees of future performance and should not be unduly relied upon.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements including, without limitation: the impact of the COVID-19 pandemic; the impact of general economic conditions; volatility in commodity prices; industry conditions including changes in laws and regulations including adoption of new environmental laws and regulations, and changes in how they are interpreted and enforced; competition; lack of availability of qualified personnel; the results of exploration and development drilling and related activities; obtaining required approvals of regulatory authorities; counterparty risk; risks associated with negotiating with foreign governments as well as country risk associated with conducting international activities; commodity price volatility; fluctuations in foreign exchange or interest rates; environmental risks; changes in income tax laws or changes in tax laws and incentive programs; changes to pipeline capacity; ability to secure a credit facility; ability to access sufficient capital from internal and external sources; risk that Arrow's evaluation of its existing portfolio of development and exploration opportunities is not consistent with future results; that production may not necessarily be indicative of long term performance or of ultimate recovery; and certain other risks detailed from time to time in Arrow's public disclosure documents including, without limitation, those risks identified in Arrow's 2018 AIF, a copy of which is available on Arrow's SEDAR profile at www.sedar.com. Readers are cautioned that the foregoing list of factors is not exhaustive and are cautioned not to place undue reliance on these forward-looking statements.

Non‐IFRS Measures

The Company uses non-IFRS measures to evaluate its performance which are measures not defined in IFRS. Working capital, funds flow from operations, realized prices, operating netback, adjusted EBITDA, and net debt as presented do not have any standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. The Company considers these measures as key measures to demonstrate its ability to generate the cash flow necessary to fund future growth through capital investment, and to repay its debt, as the case may be. These measures should not be considered as an alternative to, or more meaningful than net income or cash provided by (used in) operating activities or net income and comprehensive income as determined in accordance with IFRS as an indicator of the Company's performance. The Company's determination of these measures may not be comparable to that reported by other companies.

Adjusted working capital is calculated as current assets minus current liabilities, excluding non-cash liabilities; funds from operations is calculated as cash flows from (used in) operating activities adjusted to exclude changes in non-cash working capital balances; realized price is calculated by dividing gross revenue by gross production, by product, in the applicable period; operating netback is calculated as total natural gas and crude revenues minus royalties, transportation costs and operating expenditures; adjusted EBITDA is calculated as net income adjusted for interest, income taxes, depreciation, depletion, amortization and other similar non-recurring or non-cash charges; and net debt (net cash) is defined as the principal amount of its outstanding debt, less working capital items excluding non-cash liabilities.

The Company also presents funds from operations per share, whereby per share amounts are calculated using weighted- average shares outstanding consistent with the calculation of net income per share.

A reconciliation of the non-IFRS measures is included as follows:

Q2 2023 MD&A

2

	Three months	Six months	Three months
	ended June 30,	ended June 30,	ended June 30,
(in United States dollars)	2023	2023	2022
Net income (loss)	(757,416)	2,232,319	768,318
Add/(subtract):
Share based payments	159,018	291,259	40,917
Financing costs:
Accretion on decommissioning obligations	32,139	61,295	45,644
Interest	61,349	122,237	123,741
Other	103,172	148,854	134,981
Depreciation and depletion	3,640,189	6,094,553	971,353
Derivative loss	2,436,047	1,081,772	724,758
Income taxes, current and deferred	165,462	165,462	-
Adjusted EBITDA (1)	5,839,960	10,197,751	2,809,713
Cash flows provided by (used in) operating activities	4,990,938	7,371,133	(99,185)
Minus - Changes in non-cash working capital balances:
Trade and other receivables	1,236,941	(468,003)	2,185,670
Restricted cash	90,814	103,080	157,481
Taxes receivable	(433,680)	168,689	(4,560)
Deposits and prepaid expenses	(78,064)	35,548	(81,506)
Inventory	53,016	170,814	150,459
Accounts payable and accrued liabilities	(3,020,563)	(537,898)	305,484
Income taxes	438,639	675,281	-
Funds flow from operations (1)	3,278,041	7,518,644	2,613,843

(1)Non-IFRS measures

The term barrel of oil equivalent ("boe") is used in this MD&A. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 thousand cubic feet ("Mcf") of natural gas to one barrel of oil ("bbl") is used in the MD&A. This conversion ratio of 6:1 is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Q2 2023 MD&A

3

FINANCIAL AND OPERATING HIGHLIGHTS

	Three months	Six months	Three months
	ended June 30,	ended June 30,	ended June 30,
(in United States dollars, except as otherwise noted)	2023	2023	2022
Total natural gas and crude oil revenues, net of royalties	10,280,280	17,273,140	5,024,604
Funds flow from operations (1)	3,278,041	7,518,644	2,613,843
Funds flow from operations (1) per share -
Basic($)	0.01	0.03	0.01
Diluted ($)	0.01	0.03	0.00
Net income (loss)	(757,416)	2,232,319	768,318
Net income (loss) per share -
Basic ($)	(0.00)	0.01	0.00
Diluted ($)	(0.00)	0.01	0.00
Adjusted EBITDA (1)	5,839,960	10,197,751	2,809,713
Weighted average shares outstanding -
Basic ($)	230,808,547	226,785,547	214,367,388
Diluted ($)	295,446,047	294,694,399	288,231,900
Common shares end of period	234,274,893	234,274,893	214,667,143
Capital expenditures	6,870,258	11,141,951	2,777,611
Cash and cash equivalents	10,801,494	10,801,494	7,368,252
Current Assets	15,159,322	15,159,322	12,190,063
Current liabilities	17,522,710	17,522,710	6,596,035
Adjusted working capital(1)	6,341,935	6,341,935	5,594,028
Long-term portion of restricted cash(2)	703,683	703,683	867,047
Total assets	56,305,530	56,305,530	42,670,153
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d)	2,318	2,388	2,398
Natural gas liquids (bbl/d)	3	4	5
Crude oil (bbl/d)	1,779	1,502	575
Total (boe/d)	2,169	1,904	980
Operating netbacks ($/boe) (1)
Natural gas ($/Mcf)	($0.05)	($0.24)	$2.18
Crude oil ($/bbl)	$53.64	$55.42	$80.04
Total ($/boe)	$44.21	$43.40	$49.18

(1)Non-IFRS measures - see "Non-IFRS Measures" section within this MD&A

(2)Long term restricted cash not included in working capital

Q2 2023 MD&A

4